After tough results and difficult operating trends in 4Q12, Bank of America Merrill Lynch expects 1Q13 to be the last transitioning quarter towards better profitability for the Brazilian private large cap banks. Although the bank thinks provisions should decrease in the quarter (except for Santander), it does not expect it to offset the effects from still weak loan growth, given the banks’ low appetite for riskier credits at the moment.

Here is what they had to say about Itau:

“In 1Q13, we expect Itau to report net income of R$3.5bn, for an EPS of R$0.79 (+1% QoQ) and ROE of 18.8%. Our forecasts incorporate a net interest income (NII) drop explained by weak loan growth (+1.3% QoQ), worse credit mix and timid treasury. Moreover, we forecast 4% lower fee income and opex in the 1Q13, due to seasonal effects. Provisions should fall 6% QoQ on 10bp lower 90-day NPL to 4.7%. However, in our view an excessive provision drop may turn investors concerned about Itau’s exposure to Eike Batista’s companies and future provision increases not currently incorporated into consensus estimates.”

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